The US crisis day 2

Thursday, September 13th 2001, 3:54PM

The
US Crisis Day 2

1. Questions
& Answers

Q1Can we gain a perspective
on the tragedy - are there any historical examples that may help
us to understand the implications for financial markets?

A1 Two key issues are (i) the closure
of the US stock markets - not since World War II has the New York
stock exchange been closed for two straight days; and (ii) the
subsequent performance of US markets after the event. The following
table summaries the impact major world events have had on the
Dow Jones and the recovery time measured as 22, 63 and 126 days.

DJIA Percentage Days
After Reaction

Event

Dates

Reaction Dates

Date Range

% Gain/Loss

22

63

126

Fall
of France

05/09/1940
- 06/22/1940

-17.1

-0.5

8.4

7.0

Pearl
Harbour

12/06/1941
- 12/10/1941

-6.5

3.8

-2.9

-9.6

Truman
Upset Victory

11/02/1948
- 11/10/1948

-4.9

1.6

3.5

1.9

KoreanWar

06/23/1950
- 07/13/1950

-12.0

9.1

15.3

19.2

Eisenhower
Heart Attack

09/23/1955
- 09/26/1955

-6.5

0.0

6.6

11.7

Sputnik

10/03/1957
- 10/22/1957

-9.9

5.5

6.7

7.2

Cuban
Missile Crisis

10/19/1962
- 10/27/1962

1.1

2.1

17.1

24.2

JFK
Assassination

11/21/1963
- 11/22/1963

-2.9

7.2

12.4

15.1

U.S.
Bombs Cambodia

04/29/1970
- 05/26/1970

-14.4

9.9

20.3

20.7

Kent
State Shootings

05/04/1970
- 05/14/1970

-4.2

0.4

3.8

13.5

Arab
Oil Embargo

10/18/1973
- 12/05/1973

-17.9

9.3

10.2

7.2

Nixon
Resigns

08/09/1974
- 08/29/1974

-15.5

-7.9

-5.7

12.5

U.S.S.R.
in Afghanistan

12/24/1979
- 01/03/1980

-2.2

6.7

-4.0

6.8

Hunt
Silver Crisis

02/13/1980
- 03/27/1980

-15.9

6.7

16.2

25.8

Falkland
Islands War

04/01/1982
- 05/07/1982

4.3

-8.5

-9.8

20.8

U.S.
Invades Grenada

10/24/1983
- 11/07/1983

-2.7

3.9

-2.8

-3.2

U.S.
Bombs Libya

04/15/1986
- 04/21/1986

2.6

-4.3

-4.1

-1.0

Financial
Panic 87

10/02/1987
- 10/19/1987

-34.2

11.5

11.4

15.0

Invasion
of Panama

12/15/1989
- 12/20/1989

-1.9

-2.7

0.3

8.0

Gulf
War Ultimatum

12/24/1990
- 01/16/1991

-4.3

7.0

19.8

18.7

Gorbachev
Coup

08/16/1991
- 08/19/1991

-2.4

4.4

1.6

11.3

ERM
U.K.Currency Crisis

09/14/1992
- 10/16/1992

-6.0

0.6

3.2

9.2

Trade
Centre Bombing

02/26/1993
- 02/27/1993

-0.5

2.4

5.1

8.5

Oklahoma
City Bombing

04/19/1995
- 04/20/1995

0.6

3.9

9.7

12.9

Asian
Stock Market Crisis

10/07/1997
- 10/27/1997

-12.4

8.8

10.5

25.0

U.S.Bombings
Africa

08/07/1998
- 08/10/1998

-0.3

-11.2

4.7

6.5

Russian
LTCM Crisis

08/18/1998
- 10/08/1998

-11.3

15.1

24.7

33.7

Mean

-7.1

3.8

6.8

12.5

Median

-4.6

3.9

6.7

12.1

This data is by no means
conclusive and the dates are subjective. However, the implication
is that after an initial reaction to the tragic events, a recovery
may be reasonably expected. Certainly this has been the mood
of market with commentators noting the obvious market reaction
to an event as catastrophic as this and the prospect for a re-evaluation
after the initial shock has been absorbed.

Q2 Not withstanding the historical
data, is this event likely to be the catalyst for a global recession?

A2 Before the attacks, the
International Monetary Fund had expected global growth of 2.7%
down from 5.0% last year. The US economy was already beginning
to slow with only 0.2% growth in the second quarter. Before this
catastrophe, the US Economy's future rested on whether layoffs
would inhibit consumer spending, whether business investment would
revive, and whether home construction and home prices would stay
up. All eyes are now on the American consumer and their reaction
to events. Whether a US-lead global slowdown - which arguably
was in play in any event - is accelerated or not will become evident
over the coming days and weeks as US consumers express their sentiment
through spending and investing behaviour. If the MSN survey referred
to in an earlier update is any indication, the prospects are positive.

An MSN survey held in
the US at lunchtime on 11 September amongst 20,000 people asked
the question: "How will the attack on the Unites States
affect your financial security?" The following response
was revealed:

I am deeply troubled
15%

I expect a significant
impact 18%

I believe we are now
over the low point 15%

I am moderately
concerned but expect a rebound 51%

Q3What steps are being taken
by the worlds central banks to help stabilise market conditions
?

A3 The US Federal Reserve has said
it would provide as much liquidity as the banks need and may lower
interest rates if necessary. The European Central Bank said it
also stood ready to provide liquidity to keep financial markets
functioning. Japan's Ministry of Finance has advised that it stands
ready to take appropriate foreign exchange action as necessary.
A spokesman for OPEC, Secretary-General Ali Rodriguez, is on record
indicating that OPEC is committed to meeting world oil demand
and won't withhold oil following the attacks on the US. No reasonable
world leader wants to see this catastrophe escalate and are clearly
prepared to act if necessary.

Q4 When the US market does open,
what is the likely impact on the different industry sectors.

A4 Again consumer reaction will
be a key determinant. However, there are some obvious sectors
that will suffer. Insurance companies will face claims that are
expected to reach into the billions of dollars, making this the
most costly man-made catastrophe in U.S history . Airlines, hotels
and resorts and potentially big-ticket durable goods such as housing
and cars may suffer in the short run. On the other hand, US defence,
security and building contractors will benefit.

Q5Fund Managers and Insurance
companies have been forced to suspend trading in investment funds.
Will this build-up in transactions contribute to selling pressure
when the US markets finally open ?

A5 At TOWER Managed Funds, we have
not seen a notable pick up in transactions. Those currently held
are net purchase transactions with new applications exceeding
redemption requests. The US market is expected to open on Thursday
(US time) which will see only one additional day of accumulated
transactions held. Mortgage Plus, Bond Plus, FirstRate and currency
accounts were re-opened today. Early indications indicate that
enquiry levels with mutual fund companies in the US have to date
not exceeded normal levels.

This update
was written by Tower Managed Funds.
Thursday September 13 7.00 am